BENEFITS
So what are some of the benefits of the Dynamic Replenishment solution?

1. Increases ability to fulfill all demand.
2. Improves overall customer satisfaction.
3. Determines the optimal level of inventory required to meet service requirements.
4. Improves inventory utilization (ROI).
5. Improves ability to respond to upside requests.
6. Significantly reduces manual effort required for distribution and scheduling processes.
7. Increases flexibility to support actual demand.
8. Reduces dating and spoilage.

TRANSITIONING TO DYNAMIC REPLENISHMENT
Internal change management is required in order for the Dynamic Replenishment model to be successful. Changes include:

1. A significant portion of the hospital's inventory will be held in the central warehouse with only enough inventory to cover maximum demand within lead time and meet any applicable regulatory requirements at the point of consumption.
2. Internal metrics will be implemented to support the solution (see below).
3. Forecasts will be used for planning, not for execution.
4. Hospitals must agree on targets set in line with consumption.
5. Performance measurements will be based on replenishing to hub targets.
6. Batching, AKA min/max replenishment, will be eliminated.
7. Hospital staff buy-in must be established for going live.

MEASURING SUCCESS
A number of new metrics are required to measure the success of the Dynamic Replenishment solution:

Zone Tracking = Consecutive days that inventory is in the red zone.
In order to provide the best service to the customer while maintaining low inventory levels, it is very important to not stock out.

Time to Reliable Replenishment (TRR) = Order processing + logistics flow time

Red Zone Excursions = On-hand quantity in the red zone for a to-be determined number of consecutive days that depends on the required service level. The purpose of the red zone excursion metric is to minimize stock outs and proactively address low inventory levels.

Stock Outs = Zero on hand quantity at the hospital on a given day. Indicates poor customer service and, in retail, is an indicator of lost sales.

Fulfillment Ratio = The recommended ship quantity/actual ship quantity. The fulfillment ratio is used to measure the central warehouse’s ability to replenish hub targets.

Per-bed-day medical/surgical supply expenses

SUMMARY
Traditional medical supply distribution systems rely upon inaccurate forecasts to push medical supplies from distributors to warehouses to hospital shelves. There the fastest, most needed items typically succumb to shortages or collect dust and expire as surplus. Order batching is encouraged and orders are slated to occur infrequently to achieve volume discounts, yielding local optimums rather than global supply chain improvements. One need only look to the state of healthcare materials management throughout the world to see the widespread outcome of these policies. Such a procurement strategy yields less than satisfactory results.

By adopting Dynamic Replenishment, inventory is pulled into the system by demand signals and the impact of incorrect forecasts is mitigated because the dependency on forecasting is diminished. With Dynamic Replenishment, inventory can reach an optimal level to meet a given service requirement. While every circumstance is unique, it is not uncommon for inventory carrying costs to decrease by 30%-50% while availability flourishes at 99% levels, all by replenishing more frequently based on what is consumed and some strategic buffering. Dynamic adjustment and active monitoring not only foster a more responsive system, they alleviate risk by ensuring that medical supply levels are sufficient to meet patient demand without stocking out thanks to increased ordering opportunities and directing management's attention only to where it is needed most. Increasing inventory turns frees up operating cash which would otherwise be tied up in inventory, while reducing obsolescence and spoilage. And drastically reducing inventory costs allows healthcare systems to spend those funds where it counts most: on improving patient health.

By moving from a push system to a pull system, Dynamic Replenishment uses centralized inventories, strategic buffers and actively synchronizes supply flow. Applications in various environments, such as Naval Aviation Enterprise, Google, Nike, Amazon, Dell, Hewlett Packard, Whirlpool Corporation, Procter Gamble, Monster Cable, Seagate Technology and Pfizer demonstrate that Dynamic Replenishment significantly improves availability with as little as half the inventory. Hospitals have invested millions of dollars to implement systems that address individual segments of the supply chain without making significant improvements to the bottom line. Further automating individual processes is not the answer. Dynamic Replenishment integrates the entire supply chain, merging technology and change management into a holistic solution to meet the needs of providers and patients.

REFERENCES

1. Kowalski, Jamie C., Needed: A Strategic Approach to Supply Chain Management, Healthcare Financial Management, 2009.
2. Goldratt, Eliyahu M. and Avraham Goldratt, TOC Insights into Distribution and Supply–Chain, 2009.
3. Demory, Erin F. and Henry F. Camp, The Benefits of Moving from a Push to a Pull System, IDEA, LLC, 2008.
4. Goldratt, Eliyahu M., Goldratt Satellite Program: Chevalier Media, The Netherlands, 1999.
5. Camp, Henry F., The Negative Consequences of a Conventional Supply Chain, IDEA, LLC, 2008.
6. Efficient Healthcare Consumer Response: Improving the Efficiency of the Healthcare Supply Chain (Chicago: American Hospital Association/American Society for Materials Management, 1996).

 

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